Tuesday, March 15, 2011

GUEST POST: The Myth that Patents are a Monopoly [updated]

A patent gives the holder the right to exclude others from making, using or selling the invention. It does not give the holder the right to make, use or sell their invention. A monopoly is an exclusive right to a market, such as an electric utility company. An electric utility company has the exclusive right to sell electricity in a certain territory. Since a patent does not even give the holder the right to sell their invention, let alone an exclusive right to a market, it is clearly not a monopoly.

When a person describes a patent as a monopoly to be consistent they should also state that they have a monopoly over their car or over their house. In fact, they have more rights in their car and house than a patent gives the inventor over their invention, since you have a right to use and sell your car or house. A patent does not give these rights to an inventor over his invention. All invention are built upon existing elements (conservation of matter) and if the elements that the invention uses are patented, then the inventor will not have the right to sell their invention without a license.

Some economists argue that a patent is designed to give the holder monopoly power. Those economists who are consistent also state that all property rights give some monopoly power. The property rights are monopolies thesis shows how confused economic thought is on this subject. The only logically consistent definition of a monopoly is an exclusive right to a market.

According to Wikipedia “In economics, a government-granted monopoly (also called a “de jure monopoly”) is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement.” Since patents are clearly “government granted”, then this is the appropriate definition. Since a patent does not even provide the holder the right to sell their invention, it clearly does not grant an exclusive privilege to a firm to be the sole provider of a good or service.

There is a lot of nonsense in the economic profession about monopolies. Even the definition above can lead to nonsense. For instance, according to Locke’s Natural Rights theory you own yourself so you own the product of your labor, both mental and physical. This means anything you produce you have the exclusive right to make and sell, does this make you a monopolist?

The historical basis for monopolies is the Statute of Monopolies of 1623 in England. The Statute of Monopolies prohibited the Crown from issuing monopolies for items that were already known or being produced. The idea was to protect the Natural Rights of Englishmen to practice their craft, in today’s language the government in issuing a monopoly was interfering with private citizens rights to their property. However, the Statute did not prevent an exclusive grant for inventions. The reason for this in the words of the day was an invention did not interfere or take away anything from private citizens. The invention did not exist before it was invented, so it does not take away anything from private citizens to provide a limited term property right to the inventor.

Modern antitrust law has turned the concept of monopolies on their head. Instead of being a limitation on government power, like the Statute of Monopolies, it is a limitation on private action. Instead of protecting people’s rights to their property, like the Statute of Monopolies, it limits or takes away private property. The only logically consistent definition of a monopoly is an exclusive right to a market. No property right, gives you an exclusive right to a market. Market success is not an exclusive right to a market. Only the government can create a monopoly.

People who suggest a patent is a monopoly are not being intellectually honest and perpetuating a myth to advance a political agenda.

10 Comments:

Fentex said...

A shame this post went from an argument that patents aren't a monopoly (by arguing patent licensing doesn't ultimately control what is sold in any market) to an appeal to authority (dictionary definitions or some one elses philosophiy - it doesn't prove anything to regurgitate a philosophers definition in lieu of an argument).

Does the argument that patents aren't a mononpoly because they're a right to license and not a right to manufacture or sell products work?

I don't think so because they remain a monopoly on licensing and control of the right to manufacture and sell.

If patents instead were not left to their owners to decide on license but worked a little like compulsory play rights (as radio broadcasts use) where stations may play what songs they please without permission from copyright onwers but with an obligation to pay a set royalty then it might be fair to say they are not a monopoly.

For then they would not give control of production to the patent holders but still reward them for the presumed innovation they contribute.

But as currently constituted patents do give vetos to their owners over others business and that does make them a monopoly on their subject.

It is especially a vexing monopoly because independent invention is not allowed to contradict a patent - which is an unalloyed evil of the patent system (in that it invents the fictitious ownership of idea, inspiration, innovation and invention).

Furthermore the ongoing undermining of the conceptual foundations of patents that the invention of business and method patents represent is a reprehensible assault on the freedom of people to routinely improve and compete honestly in markets as competitors improving their arts and skills.

I agree with Fentex that the argument in this post got muddled a bit, quite apart from the fact that the starting claim that people confuse the definition of monopoly with that of a patent is a straw man argument. The real argument is that patents CAN create monopolies, not they they do so by definition, or that they are the same. Kudos BTW for pointing out that the Statute of Monopolies was in fact aimed at REDUCING government (or rather sovereign) powers, in my view unfortunately leaving the exception for novelties.As Fentex mentions, the real problem with patents is that they represent a system whereby the government creates discretionary rights (note: there is no valid argument to show IP constitutes a natural right, despite Rand's assertions) that give the patent holder power over third parties' use of their own property, a ridiculous idea if there ever was one. Note of course that no supporter of IP rights has ever been able to prove empirically that the claims about the benefits of IP is correct, quite the contrary, see for instance Machlup, "an economic review of the patent system".

A shame this post went from an argument that patents aren't a monopoly (by arguing patent licensing doesn't ultimately control what is sold in any market) to an appeal to authority (dictionary definitions or some one elses philosophiy - it doesn't prove anything to regurgitate a philosophers definition in lieu of an argument).

Does the argument that patents aren't a mononpoly because they're a right to license and not a right to manufacture or sell products work?

I think the point the author is making is that the rights granted to a patentee are exclusionary in nature: the right to exclude others from engaging in certain activities. The grant of a patent doesn’t allow the holder to actually engage in any activity. You can get a patent defining the scope of an invention and still not be able to exploit it without infringing someone else’s rights.

I don't think so because they remain a monopoly on licensing and control of the right to manufacture and sell.

A licence is really only the grant of a right to do something that would otherwise infringe someone’s rights. It’s not really the grant of a monopoly under the traditional meaning of the word.

If patents instead were not left to their owners to decide on license but worked a little like compulsory play rights (as radio broadcasts use) where stations may play what songs they please without permission from copyright onwers but with an obligation to pay a set royalty then it might be fair to say they are not a monopoly.

For then they would not give control of production to the patent holders but still reward them for the presumed innovation they contribute.

That won’t work. You can’t compare a song with a set of patent claims that define the scope of a negative right, and that sometimes do so in a way that is imprecise (often deliberately). It’s pretty easy to recognise when the song is being played. How would you determine when someone is engaging in an infringing act under a patent so as to require a royalty? Surely the person best placed to determine that would be the patent owner. Hence it seems more sensible and economically efficient to give the patent owner the right to control exploitation of the rights granted under his/her patent.

"A patent gives the holder the right to exclude others from making, using or selling the invention."" An electric utility company has the exclusive right to sell electricity in a certain territory."So utilities have monopoly grants but patent holders do not? When you cannot even find different words to use to describe the two I find it really hard to take you seriously.

Talking about ridiculous patents, I reckon that it won't be too long before some blokes somewhere file a patent on some love making techniques.

Actually, I have an island mate who told me that the reason most of his ex girlfriends kept coming back to him for some action whenever they're up here in Auckland for a temporary visit is that he's invented (since high school days) some special techniques that can make his lovers sustain a continual orgasm for about 4 minutes. Most of his ex-lovers who are living in the island have got married and have kids, but when they're in Auckland, I see them hanging out with my mate.

I'll encourage my mate to look for a patent lawyer to try & patent his secretly guarded invention. Who needs viagra, when men can just use such technique/s?

This not Alice in Wonderland – words have set defined meanings. A monopoly is a right to a market. That includes the exclusive right to sell products into that market. A patent does not give you a right to sell anything. It is straight forward logic that a patent therefore cannot be a monopoly.

Monopolies are granted for products and services that exist. Patents are granted for inventions that did not exist before they were invented. See the history of the Statute of Monopolies.

Patents are Property Rights – they are granted to the creator, because they are the creator. Property rights are not monopolies.

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Comments on this post

GUEST POST: The Myth that Patents are a Monopoly [updated]
A shame this post went from an argument that patents aren't a monopoly (by arguing patent licensing doesn't ultimately control what is sold in any market) to an appeal to authority (dictionary definitions or some one elses philosophiy - it doesn't prove anything to regurgitate a philosophers definition in lieu of an argument).

Does the argument that patents aren't a mononpoly because they're a right to license and not a right to manufacture or sell products work?

I don't think so because they remain a monopoly on licensing and control of the right to manufacture and sell.

If patents instead were not left to their owners to decide on license but worked a little like compulsory play rights (as radio broadcasts use) where stations may play what songs they please without permission from copyright onwers but with an obligation to pay a set royalty then it might be fair to say they are not a monopoly.

For then they would not give control of production to the patent holders but still reward them for the presumed innovation they contribute.

But as currently constituted patents do give vetos to their owners over others business and that does make them a monopoly on their subject.

It is especially a vexing monopoly because independent invention is not allowed to contradict a patent - which is an unalloyed evil of the patent system (in that it invents the fictitious ownership of idea, inspiration, innovation and invention).

Furthermore the ongoing undermining of the conceptual foundations of patents that the invention of business and method patents represent is a reprehensible assault on the freedom of people to routinely improve and compete honestly in markets as competitors improving their arts and skills.
I agree with Fentex that the argument in this post got muddled a bit, quite apart from the fact that the starting claim that people confuse the definition of monopoly with that of a patent is a straw man argument. The real argument is that patents CAN create monopolies, not they they do so by definition, or that they are the same. Kudos BTW for pointing out that the Statute of Monopolies was in fact aimed at REDUCING government (or rather sovereign) powers, in my view unfortunately leaving the exception for novelties.As Fentex mentions, the real problem with patents is that they represent a system whereby the government creates discretionary rights (note: there is no valid argument to show IP constitutes a natural right, despite Rand's assertions) that give the patent holder power over third parties' use of their own property, a ridiculous idea if there ever was one. Note of course that no supporter of IP rights has ever been able to prove empirically that the claims about the benefits of IP is correct, quite the contrary, see for instance Machlup, "an economic review of the patent system".

BezA shame this post went from an argument that patents aren't a monopoly (by arguing patent licensing doesn't ultimately control what is sold in any market) to an appeal to authority (dictionary definitions or some one elses philosophiy - it doesn't prove anything to regurgitate a philosophers definition in lieu of an argument).

Does the argument that patents aren't a mononpoly because they're a right to license and not a right to manufacture or sell products work?

I think the point the author is making is that the rights granted to a patentee are exclusionary in nature: the right to exclude others from engaging in certain activities. The grant of a patent doesn’t allow the holder to actually engage in any activity. You can get a patent defining the scope of an invention and still not be able to exploit it without infringing someone else’s rights.

I don't think so because they remain a monopoly on licensing and control of the right to manufacture and sell.

A licence is really only the grant of a right to do something that would otherwise infringe someone’s rights. It’s not really the grant of a monopoly under the traditional meaning of the word.

If patents instead were not left to their owners to decide on license but worked a little like compulsory play rights (as radio broadcasts use) where stations may play what songs they please without permission from copyright onwers but with an obligation to pay a set royalty then it might be fair to say they are not a monopoly.

For then they would not give control of production to the patent holders but still reward them for the presumed innovation they contribute.

That won’t work. You can’t compare a song with a set of patent claims that define the scope of a negative right, and that sometimes do so in a way that is imprecise (often deliberately). It’s pretty easy to recognise when the song is being played. How would you determine when someone is engaging in an infringing act under a patent so as to require a royalty? Surely the person best placed to determine that would be the patent owner. Hence it seems more sensible and economically efficient to give the patent owner the right to control exploitation of the rights granted under his/her patent.It’s not really the grant of a monopoly under the traditional meaning of the word.

Discussion over whether it's a monopoly or not is about picking the meaning of monopoly.

As it doesn't just name a boardgame it also doesn't just describe a precisely defined economic situation of restricted access to a market.

It also means anything restricted to one party - and in this context that means the legally granted veto over use of an invention.

It’s pretty easy to recognise when the song is being played. How would you determine when someone is engaging in an infringing act under a patent so as to require a royalty?

Any problems over identifying a breach of patent remain no matter how patents are protected or rewarded.

I wasn't, as it happens, advocating such a model, just illustrating a situation in which I think patents could exist without being a monopoly as argued by the poster.
This is the most ridiculous patent claim filed in the US that I've heard of or seen.

I recalled when I first heard about this nonsense patent on John Stossel's current affairs program (I believe that it was the 20/20 or similar when he was still with ABC).
"A patent gives the holder the right to exclude others from making, using or selling the invention."" An electric utility company has the exclusive right to sell electricity in a certain territory."So utilities have monopoly grants but patent holders do not? When you cannot even find different words to use to describe the two I find it really hard to take you seriously.
Falufulu Fisi: Here's patent 6,360,693, that covers sticks.
Here's a whole bunch of IP "horror files": http://blog.mises.org/11600/the-patent-copyright-trademark-and-trade-secret-horror-files/

Bez
Talking about ridiculous patents, I reckon that it won't be too long before some blokes somewhere file a patent on some love making techniques.

Actually, I have an island mate who told me that the reason most of his ex girlfriends kept coming back to him for some action whenever they're up here in Auckland for a temporary visit is that he's invented (since high school days) some special techniques that can make his lovers sustain a continual orgasm for about 4 minutes. Most of his ex-lovers who are living in the island have got married and have kids, but when they're in Auckland, I see them hanging out with my mate.

I'll encourage my mate to look for a patent lawyer to try & patent his secretly guarded invention. Who needs viagra, when men can just use such technique/s?
This not Alice in Wonderland – words have set defined meanings. A monopoly is a right to a market. That includes the exclusive right to sell products into that market. A patent does not give you a right to sell anything. It is straight forward logic that a patent therefore cannot be a monopoly.

Monopolies are granted for products and services that exist. Patents are granted for inventions that did not exist before they were invented. See the history of the Statute of Monopolies.

Patents are Property Rights – they are granted to the creator, because they are the creator. Property rights are not monopolies.